Order Code RS22306
October 20, 2005
CRS Report for Congress
Received through the CRS Web
Deficit Reduction and Spectrum Auctions:
FY2006 Budget Reconciliation
Linda K. Moore
Analyst in Telecommunications and Technology Policy
Resources, Science, and Industry Division
Lennard G. Kruger
Specialist in Science and Technology
Resources, Science, and Industry Division
Summary
Congressional policymakers are seeking a way to accelerate the nation’s transition
to digital television and to expedite the transfer of certain radio frequency channels from
the broadcast industry to public safety and commercial users no later than 2009. The
Congressional Budget Office has informally estimated a value of $10 billion from
auction proceeds for these commercial channels; many believe the amount could be
higher. Broadcasters are holding this valuable spectrum (channels 52-69) but would be
required to relinquish it after the transition to digital television (DTV) is achieved.
Without a hard deadline, the transition to digital television has been delayed and the
spectrum has not been made available for other uses. Congress anticipates applying
some of the proceeds received from auctions of the spectrum to be cleared to help meet
deficit-reduction goals passed in H.Con.Res. 95. Consequently, some of the legislation
deemed necessary to assure a timely transition to digital television has been proposed
for inclusion in the FY2006 budget reconciliation process.
The transition to digital television has two major policy components. One set of
policy decisions is concerned with how best to move television broadcasters and their
viewers to digital technology. The other key policy issues deal with spectrum
management and allocation. Briefly discussed below are key points about the transition
process and its possible impact on budget reconciliation negotiations. This report will
be updated over the course of the reconciliation procedure.
Budget Reconciliation
Not all the issues that Congress would like to resolve regarding the transition to
digital television will be considered as part of the budget reconciliation process; these will
Congressional Research Service { The Library of Congress

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be treated in other bills being prepared for introduction. Legislative solutions that are
under consideration as part of budget reconciliation are:
! Set a definite date for the release of spectrum at 700 MHz currently held
by broadcasters.
! Require auctions by the Federal Communications Commission (FCC) of
the freed spectrum. The FCC’s authority to hold auctions expires in
2007; therefore this authority must be renewed or extended.
! Commit money from any auction(s) of spectrum at 700 MHz, scheduled
to take place not later than FY2010, to reducing the budget deficit as
specified in H.Con.Res. 95.1
! Create a fund to receive a portion of spectrum auction revenue: to cover
some of the costs of conversion to digital TV — including financial
assistance to consumers with analog TVs; to equip first responders with
new equipment; and to fund improvements in emergency call center
(911) technology.
! Require that all the available channels in the 700 MHZ band be
auctioned2 — a total of 60 MHz of spectrum.3 Public safety wireless
communications experts have urged that 12 MHz of spectrum (in
addition to the 24 MHz already allocated) be assigned in part to
accommodate emergency communications interoperability with federal
agencies.
Value of the Spectrum
Wireless technology is evolving rapidly and in recent years the industry has moved
into offering high-speed, content-rich services generally known as 3G (third generation)
while at the same time preparing to offer new services using even more advanced
technologies. The 700 MHz spectrum that is to be relinquished by broadcasters is widely
considered to be especially desirable for advanced wireless services. Also, many states
are waiting for the spectrum to be freed in order to follow up on their plans for robust,
interoperable public safety communications networks. Furthermore, digital television
1 For the House Committee on Energy and Commerce, the total commitment could be
$14,734,000,000 for fiscal years 2006 through 2010; H. Con. Res 95, Concurrent Resolution on
the Budget for Fiscal Year 2006, Title II, Sec. 201 (a) (2) (C). Reportedly the House would use
$4.8 billion of spectrum auction revenue to help meet this goal, see, for example, “DTV Bill to
be Subsumed in Budget Bill,” Communications Daily, July 8, 2005.
2 As presently configured, 874 licenses in 60 MHz would be available for auction. Of these, 280
licenses are considered encumbered by television broadcast stations. Source: 700 MHz
Advancement Coalition at [http://www.700MHz.org/700_MHz_band.htm]. Viewed October 19,
2005.
3 Wireless (radio frequency) spectrum is measured in cycles per second, or hertz (Hz). Standard
abbreviations for measuring frequencies include kHz — kilohertz or thousands of hertz; MHz —
megahertz, or millions of hertz; and GHz — gigahertz, or billions of hertz.

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represents a superior form of technology, both in its efficient use of spectrum and the
quality of the picture it provides. The value of the auction revenue in reducing the budget
deficit is also a benefit. Overall, the benefits of releasing spectrum now used for analog
TV broadcasting to complete the switch to digital are considered to be substantial,
outweighing the costs of conversion.
In considering the potential revenue from spectrum sales, reconciliation negotiators
could decide to review the probable value of the channels. The Congressional Budget
Office has reportedly set a benchmark estimate of $10 billion in revenue from auction of
this spectrum.4 Other estimates have projected that spectrum auctions in the 700 MHz
band would gross $20 billion to $30 billion.5 A significant factor in valuing spectrum is
the size of the market served. Usually this value is expressed in terms of dollars per
MHz-Population. Using this methodology, a value of $1.65 per MHz-Population, for
example, yields a potential value of $28 billion for 60 MHz of spectrum at 700 MHz.
Dollar per MHz-Population estimates for upcoming auctions are derived from results of
earlier auctions for similar spectrum. This estimated value is then typically increased or
decreased depending on assumptions about a number of variables. The different weight
that analysts give to the impact of hard-to-measure market conditions largely explains the
range in valuations. For example, poor economic conditions may depress all markets and
put downward pressure on prices for spectrum, just as an exuberant market — eager to
implement new technology — may place an unusually high value on obtaining new
licenses. The usability of spectrum is an important factor as well. There is a disincentive
to invest in a non-performing asset, such as spectrum that is blocked by other users, or
spectrum that doesn’t serve an immediate market because new technology isn’t ready for
deployment. In the case of spectrum at 700 MHZ, many believe that there is significant
risk that the spectrum will remain encumbered, despite hard dates for the switch to digital,
thereby tying up resources indefinitely.
Background
Recent Legislative History. Consideration of spectrum issues in the current
budget resolution is one step in a long process of introducing digital television (DTV)
technology that extends over more than a decade. The Telecommunications Act of 1996
(P.L. 104-104) provided that eligibility for DTV licenses should be limited initially to
existing broadcasters. Digital signals cannot be transmitted with existing analog television
technology. Therefore, broadcasters were issued additional licenses for new, DTV
broadcast channels while continuing to broadcast on existing channels during the
transition period. The old, analog licenses were to be returned to the federal government
after the transition to DTV. In the Balanced Budget Act of 1997 (P.L. 105-33), Congress
set a deadline of December 31, 2006 to complete the transition from analog to digital
television but allowed several exceptions that can extend that deadline. The most critical
exception is the establishment of a threshold of 85% for the percentage of households, by
market, that must be able to receive digital signals before the licenses for analog
broadcasts must be relinquished.
4 “Estimates Vary on Value of Spectrum,” by Drew Clark, Technology Daily, August 1, 2005.
5 “Analysis of an Accelerated Digital Television Transition,” prepared by the Analysis Group,
sponsored by Intel Corporation, May 31, 2005, page 6 at [http://www.itic.org/archives/DTV%20
Transition%20Report.pdf]. Viewed August 30, 2005.

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Given the slower-than-expected rate of adoption for DTV in American homes, few
believe that the goal of over-the-air digital television in 85% of American households by
2006 will be reached. As a result — under the Balanced Budget Act — television stations
will be able to broadcast both analog and digital signals indefinitely. In the Intelligence
Reform and Terrorism Prevention Act (P.L. 108-458), Congress expressed its sense that
1) it must act in the first session of the 109th Congress to establish a comprehensive
approach to the timely return of spectrum held by the broadcasters and that 2) any delay
in doing this would delay planning by the public safety sector that is to receive some of
the spectrum for new communications systems. (Sec. 7501.)
DTV and Consumers. A key issue in the digital transition is that the millions of
analog televisions that rely on over-the-air broadcasts will no longer work once the analog
signal is turned off. According to a Government Accountability Office (GAO) survey,
19% of U.S. households (21 million) do not subscribe to a cable or satellite service and
rely exclusively on over-the-air broadcasting. The GAO found that low-income, non-
white, and Hispanic households are more likely to rely on over-the-air television
broadcasting.6 The Federal Communications Commission (FCC) estimates that 15% of
TV households are exclusively over-the-air.7 The Consumer Electronics Association
(CEA) has estimated that less than 13% of TV households currently rely on over-the-air
TV broadcasts.8 In June 2005, the Consumers Union and the Consumer Federation of
America issued a joint study9 that estimated that approximately 16 million households
would lose all TV reception when analog signals are cut off . Based on an estimate of a
$50 price to purchase a converter box, the report concluded that “the direct government-
imposed costs on consumers to preserve the usefulness of [analog television sets] would
be $3.5 billion or more.” The GAO estimated that the cost of assuring over-the-air
broadcasting by supplying converter boxes to households that only have analog television
could total from $460 million to $10.6 billion, depending on a number of variables such
as the cost of the boxes and the number of households eligible to receive assistance.10 The
GAO cost estimates do not include the cost of implementing a subsidy program.
6 See U.S. Government Accountability Office, Testimony before the Subcommittee on
Telecommunications and the Internet, Committee on Energy and Commerce, House of
Representatives, Digital Broadcast Television Transition: Estimated Cost of Supporting Set-Top
Boxes to Help Advance the DTV Transition, February 17, 2005. Available at
[http://energycommerce.house.gov/108/Hearings/05262005hearing1533/Shapiro.pdf]. Viewed
July 7, 2005
7 FCC, Annual Assessment of the Status of Competition in the Market for the Delivery of Video
Programming, Report FCC 05-13, MB Docket No. 04-227, released February 4, 2005.
8 Statement of Gary Shapiro, President and CEO, Consumer Electronics Association, before the
House Committee on Energy and Commerce, Subcommittee on Telecommunications and the
Internet, May 26, 2005. Available at [http://energycommerce.house.gov/108
/Hearings/05262005hearing1533/Shapiro.pdf]. Viewed July 9, 2005.
9 Estimating Consumer Costs of a Federally-Mandated Digital TV Transition, Consumers Union
and Consumer Federation of America, June 29, 2005 at [http://www.hearusnow.org/fileadmin
/sitecontent/DTV_Survey_Report-Final_6-29-05.pdf]. Viewed August 10, 2005.
10 GAO-05-258T, pp. 14-15.

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Policy issues include whether some form of financial assistance (subsidies or tax
credits, for example) should be provided by the federal government to enable over-the-air
households to purchase converter boxes or digital televisions; whether such assistance
should go to low-income households exclusively or to all households; whether subsidies,
if warranted, should be financed by proceeds garnered by auctioning the analog spectrum;
how much funding a subsidy program would require; and how much revenue is likely to
be available from auction proceeds.
DTV and the Broadcasters. Many cable households might wish to continue to
use analog televisions after the transition. Cable companies might offer converter boxes
to these customers. As an alternative, it is possible that cable providers might seek
authority from Congress to “downconvert” the digital signal of selected local broadcast
stations to analog format. To serve customers with digital televisions, cable providers
would continue to provide digital signals as well (in other words, “dual carriage”). Under
this scenario, a key issue is whether (and how) Congress should mandate which local
broadcast stations would receive the benefit of “dual carriage” to cable customers, and for
how long. A related issue is whether cable systems should be required to carry any or all
digital multicasted channels transmitted by commercial broadcasters (known as “must
carry”). The National Association of Broadcasters has maintained that its “priority
continues to be the prevention of cable companies from blocking consumer access to local
TV programming.”11 Reportedly, NAB is arguing that its acceptance of a hard date for
relinquishing broadcast spectrum is contingent on passage of a “must carry” requirement
for cable companies.12
Legislative Activity
Some aspects of the budget resolution could take into account proposals in other
legislation. Among bills introduced or planned that deal with spectrum at 700 MHz and
the transition to digital television are: the following
! Beginning with the 107th Congress, Representative Jane Harman has
introduced the HERO Act in each Congress; this legislation would assure
the release of spectrum for public safety use (H.R. 1646, 109th Congress).
! Senator John McCain has introduced the SAVE LIVES Act (S. 1268,
109th Congress) that would release all the encumbered spectrum and fund
subsidies to cover some of the costs of transition, among other
provisions.
! Senator Olympia J. Snowe has introduced a bill, S. 1600, with the
primary objective of assisting low-power TV stations, especially those
serving rural areas, in completing the transition to digital television.
11 “Statement,” NAB Newsroom press release, June 29, 2005 at[http://www.nab.org/newsroom
/pressrel/statements/062905_CU-CFA_Survey_Statement.htm]. Viewed October 19, 2005.
12 See, for example, “DTV Bills Coming Soon,” by Ted Hearn, Multichannel News, page 28,
October 10, 2005.

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! Representative Joe Barton (Chairman, Committee on Energy and
Commerce, House of Representatives) and Senator Ted Stevens
(Chairman, Committee on Commerce, Science, and Transportation,
Senate) are reportedly preparing bills covering aspects of the release of
spectrum and the transition to DTV that are likely not to be included in
a budget resolution.13
13 “Reconciliation Moves to Center Stage,” National Journal’s CongressDaily,” am edition,
October 17, 2005.

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